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When CAN DO Inc. began to revive the area’s economy in the 1950s, the organization attracted manufacturers to Greater Hazleton.

Those manufacturers created jobs that paid family-sustaining wages and benefits.

In the last two decades, changes in the U.S. consumer market have shifted the focus to distribution center jobs.

Those who oppose bringing in those jobs argue they pay less, and there are fewer of them.

But according to CAN DO officials, the market changes necessitated that they attract those jobs, which are now more technical, pay more, and there are more of them.

The rise of e-commerce — and the way the modern manufacturer handles its raw materials and finished goods — have made distribution centers important to any locale’s job creation.

While all of this was going on, many manufacturers found they could save a lot of money by taking their production outside the United States.

Now, many of those manufacturers are finding that paying 10 unskilled people $2 an hour offshore is less efficient that paying one skilled person $20 per hour in the U.S. So some companies are bringing those jobs back.

Different jobs

CAN DO President Kevin O’Donnell said that for many years, many CAN DO board members did not want the organization pursue distribution center jobs.

“There is warehousing, distribution and fulfillment centers,” O’Donnell said. “Warehousing is usually the raw materials. The distribution is to retail stores. The fulfillment part is right to the customer. Some are a combination of distribution and fulfillment.”

Another issue that fueled the growth of distribution was when local manufacturers began to maximize production space in plants by outsourcing raw materials and finished goods storage.

“When CAN DO started, we built the industrial parks to try to bring jobs into the area,” O’Donnell said. “The only kind of jobs we were looking for at the time was manufacturing, and we were successful at it.

“Each of these manufacturing companies had space in their buildings either to store raw materials or finished product in their buildings. When storage became more than the building could handle, there were different logistics companies from the Wilkes-Barre area that came down here and offered to store the material they manufactured or the raw material in Wilkes-Barre. This went on for a number of years. The transportation was expensive.”

Empty manufacturing facilities in Hazleton area industrial parks suddenly became warehousing. Those Wilkes-Barre companies were replaced by local companies, like Karchner Logistics, which was created as an extension of a family-owned trucking firm. Karchner acquired many of the empty industrial buildings in the area and converted them to distribution buildings.

“For the longest time CAN DO was averse to warehousing companies coming into the Hazleton area. It was not what we were looking for. We were looking for manufacturing jobs,” O’Donnell said.

Hazleton became a popular place for all three types of storage facilities because of the presence of interstates 80 and 81.

“What we realized after awhile was with interstates 80 and 81 to be located so close to the Hazleton area was really an asset to this community and should be taken advantage of,” he said. “Even with that, there were people on our board who really were not for bringing in distribution companies in here.”

To look further into the phenomenon, CAN DO did a distribution study in the mid-1990s. “We wanted to see whether or not it was worthwhile to go after distribution companies,” O’Donnell said. “The study came back very positive. It showed we should never give up the search for manufacturing, but it touted the advantages of having distribution companies.”

Wages now similar

Technology is one reason for the falloff in manufacturing jobs, said Frank Zukas, president of the Schuylkill Economic Development Corp. (SEDCO).

“Manufacturing has moved into automation, which has been instrumental in shrinking the amount of labor it uses,” Zukas said. “Logistics operations, because of the amount of technology they use, requires a large amount of labor. Wal-Mart employs 1,000 people. You’re hard-pressed to find a manufacturer who employs that many.”

O’Donnell said the wages of manufacturing and distribution are now similar.

“It used to be that manufacturers had more skills involved than distribution back when distribution was picking boxes and putting them on pallets,” O’Donnell said. “The wages would stay level with that starting wage, whereas the manufacturing jobs would increase with skills. That isn’t the case anymore.”

Zukas gave an example.

“Wal-Mart’s wages are competitive in the marketplace,” he said. “The electronic billboards advertise $16.70 per hour, which is a nice, family-sustaining wage for a starting wage.”

Companies like American Eagle and Amazon, which have two of the largest buildings in the Hazleton area, are more high-tech than some local industries are.

“I think they (American Eagle) have maybe two forklifts in the whole place,” O’Donnell said. “Everything is automated. It’s a whole different world with distribution. All of this automation takes a tremendous amount of talent to build and maintain in these facilities.

“We found that distribution is a good type of business to locate in the area. We find now that the wages in these facilities are very good for this area. We found out you have to have a mix because what we’re seeing is the manufacturers are able to take that space they were previously using for storage and with the aid of a logistics company, they are able to repurpose that storage space to do additional manufacturing, and allow the logistics company to store the product for them off-site. When a customer needs it, it comes from that facility to them.”

“I would stack American Eagle up against any of the industries out there,” Lettiere said. “When you walk into American Eagle, you see a clean environment with almost a college campus-like cafeteria setting, a fitness room, and the desire to treat their employees well.

“We talk about upward mobility, and the ability to increase salary when you come in. We have testimonials of people working there who have been there six months, not even a year, who have been promoted to supervisory levels and moving through the ranks. Opportunity is there for people.”

Manufacturing and distribution are about even in the number of jobs they provide, and the space they occupy.

“You’ll see in the numbers, we’re still fairly even,” Lettiere said. “We had been skewed toward manufacturing for the longest time. We had been 60-40 manufacturing-distribution, and just started skewing back toward distribution/logistics.

“Amazon has put a tremendous number of jobs into the market, and that has impacted the numbers a bit, because it is such a significant number of jobs. Amazon and American Eagle, which is 1 million square feet, made a big difference in square footage. It is now heavily skewed to distribution.”

The number of jobs each provides is also competitive. In Hazleton area industrial parks, there are a half-dozen logistics operations owned by companies. Their jobs numbers start at 100 and go up to 400. That’s not even considering the private logistics companies like Karchner that work for the manufacturers.

There are about two dozen manufacturing companies with over 100 employees, 680 being the largest at Cargill.

Schuylkill County has several company-operated logistics/fulfillment centers, which are its largest employers.

“Wegmans employs 500, Lowe’s 600, and Big Lots 350,” Zukas said. “SAPA Extrusions, the former Cressona Aluminum and Alcoa, employs 1,000. Hexcel, Air Products and Guilford Manufacturing each employ about 300, but they are the next largest.”

Distribution companies also create ancillary jobs, O’Donnell said.

“What is the prime ingredient in these distribution companies? They’ve got to be able to transport the material, so they’ve got to have trucks, and the trucks need to be repaired,” O’Donnell said. “They have to be maintained. In order to do that, you have to be a trained diesel mechanic. These guys make big bucks.”

Zukas agreed.

“Logistics operations are typically 24/7 operations,” Zukas said. “Wal-Mart has a trucking fleet. They have about 100 drivers they dispatch out of their center. Those truck drivers earn about $70,000 a year. These logistics centers employ a lot of support services. They use a lot of maintenance, especially snow plowing. They keep a lot of our smaller excavating businesses going in the winter plowing snow.”

High-tech

Zukas said distribution is the wrong word to use when talking about such facilities in Schuylkill County.

“It is logistics, especially the type of operations we have which are heavily focused on technology,” he said. “When you go into Wal-Mart or Wegmans or Lowe’s, the amount of technology is startling. It’s not just picking and packing. There’s a lot of technology associated with it.”

Zukas said local industrial developers have made the area ready for large distribution centers.

“Our geographical location with interstates 78, 80 and 81 make us a prime location for logistics operations,” Zukas said. “The boards of CAN DO and SEDCO had the foresight to prepare for this. With our topography, it is a challenge to find a 100-acre site for a large building.”

Distribution is becoming more high-tech because of consumer demand, Lettiere said.

“I think what we’re seeing is the result of the shift in consumer behavior to change from the traditional sources of shopping and buying goods from the brick-and-mortar retail stores to e-commerce,” Lettiere said. “There are e-commerce retailers who have a presence with the brick-and-mortar stores and those (with) almost all of their sales done on the Internet. What we are seeing is the sophistication of their ability to bring goods to customers. It’s all about customer demand.”

As consumer growth in e-commerce continues to increase, the window to deliver goods is shrinking because of the demand to get a product to a doorstep, Lettiere said.

“As these e-commerce retailers are finding if they want to get customers their goods same-day or next-day delivery, their sophistication level of their distribution and logistics has forced a lot of the movement in this sector,” Lettiere said. “That’s where the growth has been, and I think as a community we would have been left behind if we didn’t embrace that. With the benefits of interstates 80 and 81 and all of the access we have to the population centers of New York, Philadelphia, Washington and Boston, we are at the epicenter of being in that logistics circle that is so important to these companies to be able to get goods and services to the end user.”

Instead of ignoring distribution and trying to get more manufacturing, which was going abroad, CAN DO went with the times — but also tried to attract manufacturers that still thrived in the United States.

“What you’ve seen is CAN DO and Hazleton embracing the change in our economy, and the fact that manufacturing projects aren’t as prevalent as they had been in the past,” Lettiere said. “We had a movement where there had been a lot of off-shoring happening, and manufacturing was at a standstill in the country. We tried to identify those manufacturers and industries that would be more apt to need to stay in the United States.

“Plastics is very difficult to ship, and very expensive. It’s natural to have it close to market. That’s why we have a predominance of plastics,” he said. “Food is ever-changing, as far as consumer tastes. We feel that is another extremely important industry we focus on, and something that also taps into the natural benefit of having interstates 80 and 81 in our community. I think what we are seeing is us as a community embracing what the market is.”

Off-shoring back?

A lot of the distribution activity involves companies taking their product out to make more room for production in the plant, but a lot of it has to do with off-shoring that has been going on the last 15 to 20 years, O’Donnell said.

“Those companies are shipping into California, or going through the Panama Canal — that’s why it’s being widened — or to the eastern ports,” he said. “The material has to be transported there and stored somewhere until it’s ready to be taken to the end user. We have the I-81 and I-78 corridors nearby.”

CAN DO is trying to get manufacturing that went off shore, but it’s not as easy as one may think.

“Off-shoring had a lot to do with what we see in our area right now, the last two decades,” O’Donnell said. “We are re-shoring, but there is a problem with that. A generation has gone by since the off-shoring started. All of the skills that were commonplace for working in manufacturing have all but disappeared. As companies come in, they are finding they have to train people all over for manufacturing.”

With today’s technology, training workers has become easier than it ever has been.

“There are many programs that have been set up to assist in this through the CareerLink, NEPIRC and other places,” O’Donnell said. “There are programs that are trying to help manufacturers find the talent they need.”

Now, the problem is not training workers, but getting people who have the work ethic and motivation to work efficiently — and the ambition to get the training they need.

“What we hear from all of our industries, they just want workers who show up on time, are consistent, that are interested in working in a team environment,” Lettiere said. “They can train almost anyone in that mind-set to do what they need to do.”

For two generations, American parents have been pushing their children to get a four-year college degree and get a job where they don’t get dirty. That attitude has left a skills gap for the trades — industrial maintenance mechanics, welders, or anyone with a commercial driver’s license.

“Those positions have not been filled at the same rate as others, because there is not the same pool of candidates,” Lettiere said. “So there are opportunities for anyone with any kind of work ethic to be able to move up the ladder if they are willing to learn some additional skills. There’s always an entry-level wage that is almost always related to the level of education.”

The skills gap leaves jobs unfilled, O’Donnell said.

“There are a lot of good jobs here,” he said. “Unfortunately, there are a lot of jobs that remain unfilled. It’s become frustrating to some employers that they have not been able to fill those jobs. The skills are not there. In 18 months, someone can learn a trade, and start at $55,000 to $60,000 a year.”

“There is opportunity out there, no question, especially for those who want to continue to improve their skill set,” Lettiere said.

Not giving up

While CAN DO has cashed in on distribution, it is still looking for manufacturing. But the competition is stiff.

“We’ve had significant wins in manufacturing with ADM and Gonnella,” Lettiere said, referring to the former Archer Daniels Midland (now Cargill) chocolate plant and the frozen dough plant, respectively, in Humboldt North.

“The importance of skills available in the community when we are competing for projects, especially in manufacturing, is important,” Lettiere said. “Companies want a funnel of talent. They don’t want to know one position can be filled, they want to know if there is attrition or turnover, that they have three or four applicants for every position. They want to be able to look and see what kind of students are coming through our educational system, the skill level. All of that is a factor in competing.

“And we are not just competing within the United States, but globally. For those that don’t matter what the location is, they are highly competitive. One company got $1.3 billion in incentives from the state of Nevada.”

Another problem in attracting manufacturing is that companies have become more sophisticated in choosing a location, Lettiere said. It’s not like in the old days, when a company could be wooed to an area with various methods ranging from financing to schmoozing.

“It’s amazing the lack of control in our ability to recruit industry,” Lettiere said. “As the sophistication level of these companies grows, they are already doing the logistics analysis, they already know exactly where they have to be in a certain radius, to make it as economical as possible to ship goods. Then they will search for a location within that circumference, and that’s where they go.

“Manufacturing is doing the same thing. They are sophisticated in their approach in knowing what their cost is of doing business and it all relates to customers wanting cheaper pricing and quickness to market. It’s really not as easy as saying we want XYZ company, let’s go out and get them.”

Fortunately, CAN DO and the Hazleton area have a good reputation in the industry of attracting industry, Lettiere said.

“We have a strong work ethic, and many plants say their Hazleton plant is a strong facility in their network,” Lettiere said. “Humboldt is highly respected throughout the real estate community, very well known. We can compete with just about any area, as far as the quality and number of businesses in that park. Our community should be proud of that.”

jdino@standardspeaker.com

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